The last three decades have been a mixed report for India’s car industry. The good news is that homegrown companies like Tata Motors and Mahindra & Mahindra have more than held their own against the MNC onslaught and have in fact raced ahead.
15 Aug 2022 | 10032 Views | By Murali Gopalan
Even as India celebrates 75 years of Independence, its true potential was unleashed only in 1991 when the PV Narasimha-led government kicked off its historic economic reforms initiative.
Till then, it was just another part of the world map chugging along complacently with a minuscule presence but all that ...
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Even as India celebrates 75 years of Independence, its true potential was unleashed only in 1991 when the PV Narasimha-led government kicked off its historic economic reforms initiative.
Till then, it was just another part of the world map chugging along complacently with a minuscule presence but all that changed when liberalisation became the new password. Today’s India is a far cry from the landscape of three decades ago even while it continues to cope with a new set of challenges.
As an industry that contributes to nearly 50 percent of manufacturing GDP, the country’s automotive industry is doubtless a critical engine of growth. Has it however lived up to its potential? With an annual output of three million cars, this is hardly anything to write home about compared to China’s tally of over 30 million.
There are no two ways about the fact that this is a story which is a mix of underperformance, excessive regulations, a fiercely price-sensitive market and missed opportunities. There was a time when more optimistic projections looked at a production figure of six million cars by the end of 2020. Clearly, the script has gone awry though the good news is that the two-wheeler segment has grown by leaps and bounds over the years even though it has also been facing headwinds in recent times.
Auto market opens up
Since the early 1990s, when the gates were thrown open to multinational carmakers, it has been a rollercoaster ride for most manufacturers. India remains a market where Maruti Suzuki continues to dominate with Hyundai Motor as its most significant rival while other brands make up the balance.
There have been prominent exits in the form of General Motors and Ford while the earlier years saw Peugeot (which has now returned in a stronger avatar as Stellantis with Citroen leading the charge) and Daewoo call it a day. Honda has been compelled to shut down one of its facilities and operates from another with little to show even after two decades of being around.
Yet, for all those automakers which complain about the difficulties of operating in India, there is still a Hyundai, Kia and, of course, Suzuki which remind you that they are more than ready to face the challenge. It is clear that Asian manufacturers better understand the complexities of this market much better than their counterparts from the West, especially the US where a top two-wheeler brand like Harley-Davidson also had to shut shop.
In the two-wheeler space, the story has turned out to be far more positive with homegrown companies like Hero MotoCorp, Bajaj Auto, TVS Motor and Royal Enfield clearly displaying that they are more than a force to reckon with today. Bajaj is India’s largest exporter of two and three-wheelers with annual numbers close to 2.5 million units. TVS is now the second largest and these two companies have walked the talk in putting India truly on the global map.
As the world’s largest producer of motorcycles and scooters, Honda continues to be a formidable player in this part of the world but it has still not been able to dislodge its former ally, Hero, from the number one slot. Yamaha and Suzuki, which also started their two-wheeler innings here with local partners, have marginal market shares and this is where the Indian brands have stood tall and conclusively proved that they are no pushovers.
Moving on to commercial vehicles, Tata Motors and Ashok Leyland continue to be the prime movers even while there are worthy challengers in the form of Daimler India Commercial Vehicles and the Volvo-Eicher combine (VE Commercial Vehicles). MAN Trucks of Germany struggled for many years and finally decided that it made little sense to continue as the proverbial drowning man with a straw. After all, India is not the easiest of markets to operate in but for those who are determined like Daimler or Hyundai, the sky’s the limit.
It is perhaps appropriate at this stage to get into rewind mode and dwell upon some important parts of the post-reforms journey for the automobile industry. By the turn of the early 1990s, everyone within the Indian ecosystem was riding high on the prospects of tying up with big global car brands. Even a two-wheeler player like Bajaj Auto threw its hat into the ring and kicked off talks with a host of players before it finally decided that expanding into a new domain like cars was really not worth its while.
Maruti Juggernaut
However, others were on a roll forging alliances with a vengeance. Premier Automobiles may have been elbowed out by the Maruti juggernaut but this did not deter the Mumbai-based carmaker to join hands with two big European brands: Peugeot as well as Fiat Auto, its long-term partner of many decades.
Hindustan Motors, likewise, tied up with General Motors and then Mitsubishi for two different alliances. Were both these legacy brands biting off more than they could chew? Evidently yes going by what would transpire in later years as they were rapidly pushed into oblivion.
Neither had the clout to contribute to their JVs and their own brands such as the Ambassador and Premier Padmini were shown the door by a ruthless market on the lookout for contemporary products which were competitively priced.
Mahindra & Mahindra, another homegrown automaker, was already making news for its proposed partnership with Chrysler and bringing the Grand Cherokee to India. However, it pulled off a huge surprise by opting for Ford instead as its preferred ally.
Chrysler, meanwhile, pursued the idea of an Asia-specific model with Bajaj Auto but when that did not work either, junked its India plans and soon merged with Daimler globally in a disastrous experiment. Eventually, Chrysler would be part of the Fiat fold following the global meltdown of 2009 which had Detroit on its knees.
Tata Motors (or Telco as it was then known) entered into a joint venture with Daimler to assemble the Mercedes-Benz brand while the DCM group, which had partnered with Toyota for light commercial vehicles over a decade earlier, now had Daewoo as its ally for cars. The other Korean brand, Hyundai, chose to go on its own while Toyota teamed up with the Kirloskars and was now determined to put up a stronger show after its LCV debacle.
Honda and the Siddharth Shriram group decided to join hands while the Volkswagen group decided to pitch Skoda as its India face initially with Audi to follow. BMW also decided to set up shop on its own but by this time, it was quite apparent to these MNCs that India was not going to be the easiest of markets to operate in.
In mid-1996, Peugeot was beginning to feel the strain of labour trouble at its plant in Kalyan near Mumbai in its joint venture with Premier. In subsequent months, it also had a falling out with its partner who had decided to team up with Fiat. The issue of the non-competition clause finally had to be settled legally and even though the ball ended up in Peugeot’s court, the company abruptly shut down operations in end-1997.
Headquarters in Paris was apparently of the view that the market was still in sluggish mode and it made little sense to pump in more money when the returns were slow in coming. Even prior to taking this hasty decision, the Peugeot top brass had met their counterparts in Fiat overseas and offered to share the Kalyan facility as part of an effort to optimise capacity better in India.
The Italian automaker, which had by this time tied up with Premier, turned down the offer and this reaction perhaps emanated from the massive success story it had displayed in Brazil with Project 178. The Palio had made global headlines and Fiat was riding high on confidence with ambitious plans to replicate a similar script in India. At a time like this, sharing capacity with a rival auto brand would have seemed nothing short of being a loser or someone on the defensive.
Peugeot then tried to rope in fellow French automaker, Renault at Kalyan as part of another effort in joint manufacturing for the latter’s Kangoo but when this did not materialise, the company took the easy way out and just shut down its plant.
In the process, it left behind a trail of angry customers, financiers, vendors and dealers but was clearly not bothered going by the way it exited without a second thought. The Peugeot departure was the first big blow to the automobile script post-reforms with more to follow.
A confident Fiat was now looking forward to a buoyant chapter in India especially when its debut offering, Uno, had got nearly three lakh bookings. What the company did not reckon with, however, was the challenge in translating these into quick deliveries. The Kurla plant which it took over from Premier had its own set of issues to deal with and irate Uno customers just began cancelling their bookings.
Fiat’s nightmare in India was now all set to begin and all the initial euphoria had now vanished into thin air. Headquarters at Turin was in the midst of its own restructuring exercise and there was little need to pay individual attention to India.
The company could not quite get a grip on its product plans following the Uno debacle and dealers were an exasperated lot. Following a tepid market response to the Sienna, the only way out was to wait for the Palio which in turn meant a churn of new leaders in India and further instability in the process.
Hyundai's early moves
In the midst of all this, an unknown Korean brand was quietly putting its building blocks in place at a facility near Chennai. Hyundai was not a familiar name in Indian households but was determined to go all out and prove a point.
The company had a brilliant marketing mind in BVR Subbu who understood the terrain and what it took for a brand to succeed. He had spent a good part of his professional career at Tata Motors’ commercial vehicle business and understood every nook and cranny of India. It was Subbu who played a huge role in building brand Hyundai right from roping in Shah Rukh Khan as brand ambassador and then going flat out to make the Santro a fashionable acquisition.
Further up in the north, the Daewoo-DCM combine got off to a resounding start with the Cielo and a model-starved market queued up for the sedan. Daewoo, like its other Korean counterpart in Chennai, was keen to display its mettle and was now all charged up with its next big offering, the Matiz compact car.
Indian consumers loved it except that the company was having bigger problems back home in Korea where its parent was rapidly hurtling towards bankruptcy. If Peugeot exited because of an arbitrary decision by HQ in Paris, Daewoo was now being forced to call it a day in India because its umbilical cord from the parent was weakening.
Amidst all this drama, two Indian companies were in the midst of taking some important decisions which would either make or break them in the process. Ratan Tata, whose passion for cars was only too well known, made it known that Tata Motors was working on a completely new made-in-India offering for the masses. The announcement got the market into a tizzy with people wondering what was in store for them.
They were not disappointed when they saw the unveiling of the Indica at the 1998 Delhi Auto Expo. Even within the government, patriotic feelings were running high because it was in the midst of a bitter spat with Suzuki in its Maruti Udyog joint venture.
In the midst of this tug-of-war came the Indica which was, in a sense, a tribute to Indian manufacturing and prompted the then Industries Minister to label it the Kohinoor of India. There was absolutely no question that the 1998 Auto Expo was all about the Indica as much as the one to follow a decade later would be synonymous with the Tata Nano.
The 1998 event in New Delhi was as important for other manufacturers like Hyundai which showcased the Santro while Daewoo had its Matiz on display. Toyota had announced its intent with the Qualis while the Fiat pavilion had an impressive range of models to showcase. The 1998 Auto Expo was one of the most colourful occasions with an array of products but it was the Indica that was the showstopper.
Ratan Tata had thrown down the gauntlet and rivals were clearly worried about what was to follow. The Indica did get off to a resounding start and its diesel engine was a clear USP but sadly enough it did not end up being a chartbuster even though the initial euphoria levels were staggering. Despite the fact that it had not lived up to its potential, Ratan Tata had sent out a clear message of his vision for the company which was till then largely into trucks.
The Mahindra brand
Meanwhile, another Indian brand had decided that its joint venture with Ford was not going to yield too much in the long run from the viewpoint of making a name for itself in the car market. Further, M&M was of the view that it made more sense to stick to its core competencies of making MUVs/SUVs rather than spread itself too thin by getting into cars.
The company stopped further investments in the Ford JV and focused all its energies on Project Scorpio. Anand Mahindra, who had taken over as MD in 1997, had brought on board a brilliant engineer from Detroit who had worked in General Motors and would now be lead managing this new initiative.
His name was Pawan Goenka who would in later years be referred to as the Father of the Scorpio. It was not easy going for M&M but it stuck to its task diligently and the new offering was displayed in 2002. The Scorpio took the market by storm and a new chapter had begun for the company.
The following years would see market equations change for different automakers even while States went all out to woo big brands into their fold. Till this point in time, the favourite destinations were Maharashtra and Haryana but there was now a new kid on the block in the form of Tamil Nadu which had already snared Ford and Hyundai and was now keen on netting more brands into its fold.
Its efforts paid off and it would soon be referred to as the Detroit of Asia even while Maharashtra got back on track along with another newbie in Gujarat which was as keen to showcase its potential as an automotive manufacturing location. Haryana was not going to be left behind either while Andhra Pradesh finally hit pay dirt by wooing Kia into its fold in subsequent years. Karnataka was home to Toyota and Volvo which would soon emerge a force to reckon with in intercity bus travel.
However, we are moving ahead of the story. With Peugeot and Daewoo exiting the Indian landscape, Hyundai was quickly emerging a strong rival to Maruti thanks to the runaway success of the Santro. Toyota, likewise, hit the bulls-eye with its Qualis and was confident enough to replace it some years later with the Innova which turned out to be another success story and, more importantly, a money spinner.
Yet, Toyota had little to show in terms of market share despite offering other globally renowned products like Corolla. In later years, its attempt to pull off another success story with the Etios in the entry-level space fell flat on its face. Another Japanese automaker, Honda, caught the fancy of customers with its City sedan which continues to post decent numbers while its manufacturer still struggles to come to grips with this market.
Meanwhile, with the success of Scorpio, M&M was emboldened enough to stage a comeback to cars even though SUVs would be its core focus. The company actually went a step further to position itself as a mobility solutions provider which saw it make an entry into trucks as well as two-wheelers with the acquisition of Kinetic’s struggling business. In cars, the alliance with Renault was confined to just one product — Logan — which would be produced at M&M’s plant in Nashik.
Small car hub
By this time, the Centre had also made known its intent to facilitate India’s role as a hub for small cars which therefore meant that all models under four metres in length would have a concessional excise duty. The fact that auto fuels were also subsidised — especially diesel where the subsidy element was quite considerable — meant that the stage was set for a massive dieselisation wave. Those manufacturers who had both powertrain options benefited while others like Honda which only had petrol to offer were quickly relegated to the sidelines.
It was this excise duty structure which played a role in ensuring that the Logan began with a drawback by virtue of its length at over four metres. This attracted a heavier levy of 24 percent, nearly twice as much as its smaller siblings which were less than four metres long. The joint venture with M&M did not quite last the course either, even though the initial phase saw the partners commit themselves to a far more ambitious project for India with Nissan in tow.
However, the failure of Logan also saw M&M reset its priorities and it withdrew from the next big step at Chennai with Renault-Nissan. The global allies however stuck to their plans and commissioned a plant with a capacity of over four lakh units. By this time, the world was facing the backlash of the Lehman crisis and the automobile industry had its back to the wall.
A whole lot of events unfolded during this difficult period. While Ratan Tata had the crowds salivating at the 2008 Auto Expo with his prized Nano, his company was facing tremendous political opposition to the location of this project in West Bengal. It was during this time that Narendra Modi, who was then Chief Minister of Gujarat, went all out to woo Tata Motors and lay out the red carpet in relocating the Nano here.
Soon, Gujarat was making the headlines as the new auto hub and caught the eye of other automakers like Maruti, Peugeot and Ford as well as Honda Motorcycle & Scooter India. General Motors already had its plant at Halol and Gujarat was well and truly on its way to becoming a viable alternative to established locations like Maharashtra, Tamil Nadu, Haryana and Karnataka.
Peugeot, however, had to shelve its plans in the aftermath of the global slowdown which saw GM rope in its Chinese partner, SAIC Motor Corp, to help out with its India revival plans. This challenging period did not deter Ratan Tata and his company from buying out Jaguar Land Rover from Ford for a whopping $2.5 billion in 2008.
Two years down the line, M&M acquired an ailing SsangYong Motor of South Korea for $470 million and it was heartening to see two established Indian brands now going the extra mile in their global forays. Yet, with oil prices now at new highs of $140/barrel and the diesel subsidies burning a hole in the Centre’s balance sheet, the country was going through some really difficult times.
There was still some cause for cheer in this grim backdrop. Renault brought out a winner in the Duster which paved the way for a new momentum in compact SUVs. Since the time it called it quits with M&M, the new business model with Nissan was turning out to be a more encouraging narrative for the French automaker.
Its CEO, Carlos Ghosn, was a huge advocate of frugal engineering and was hugely impressed with the costing structure of the Tata Nano. He was of the view that something similar could be attempted and this is where Renault-Nissan forged an alliance with Bajaj Auto for the ULC (ultra low cost) car project. Nothing came out of this eventually but Renault pursued its frugal engineering lessons to launch the Kwid which quickly climbed the sales charts.
Clean air and emissions
By this time, the BJP had swept to power at the Centre in 2014 and the following years would see some dramatic changes happening in clean air legislation. It was also evident that the aftermath of the Lehman crisis had forced some companies to reprioritise their global strategies since cash conservation became top priority.
GM was the first to announce that it was pulling out of India (and a host of other markets like Russia, Thailand and South Africa) which was not entirely unexpected given its poor track record here. Yet, it was a huge setback to its workforce and even while the company sold its Gujarat facility to China’s SAIC, its other plant near Pune lies orphaned even though Great Wall Motors had agreed to acquire it in 2020.
The need for survival now became important for carmakers which were now forced to look for cleaner alternatives thanks largely in part to the Volkswagen diesel fudging scam which stunned the world. As Europe turned more strident on the need for electrification, India also decided that the time had come to tighten the screws on foul air. The Centre now set a stringent timetable which would now mandate the auto industry to leapfrog from Bharat Stage IV to BS VI emissions norms in a timeframe of barely three years.
Consolidation had now become the name of the game with companies forging new alliances to stay afloat and shedding unviable businesses. The VW group, in an attempt to turn around its fortunes in India, kicked off a new initiative which would see Skoda lead-manage the show. Thus far, the India 2.0 programme is working like a charm with both Skoda and VW rolling out two products each — Kushaq-Slavia and Taigun-Virtus — from the MQB platform.
The other big global alliance which is now getting stronger by the day is Toyota-Suzuki which is clearly thinking big both for India and emerging markets. The partners began on a quiet note with product swaps but this has now extended to deeper bonding in technology and will soon see some new exciting products launched worldwide.
Whilst on the subject of alliances, Groupe PSA and Fiat Chrysler Automobiles (FCA) merged globally to create Stellantis which will have its own dynamics panning out in India even though the bigger action will largely be in Europe and North America. After the Peugeot debacle, PSA is now putting its best foot forward with Citroen while FCA has effectively buried the Fiat brand and will now have Jeep lead the way.
In its earlier avatar as Fiat, the company had turned to Tata Motors as part of the revival plan for India and the manufacturing alliance continues at Ranjangaon. Whether Stellantis will buy out the Tata stake and consolidate its India operations remains to be seen.
After GM, Ford has also called it a day in India and one of its plants in Gujarat has been sold to Tata Motors which has made a strong comeback in cars and is also pursuing electrification aggressively. The other facility near Chennai has also stopped operations but there is no sign of anyone stepping in at least for now.
Ford had actually sewn up a comeback strategy with former ally, M&M, but the Covid outbreak followed in some months and the entire world was thrown out of gear. Companies suffered huge losses as a result and the top priority was to recast their priorities especially with new demands like electrification which would involve huge investments. The partnership with M&M had to be shelved while the Indian SUV maker, likewise, shed non-viable businesses like SsangYong and chose to focus on its bread-and-butter business of stylish SUVs and, of course, electric mobility.
The China factor
At one point in time, Chinese automakers were lining up for investments in India and the success of SAIC (with MG Motor as its calling card) was a huge source of encouragement to them. Changan, Great Wall and FAW lined up big plans but then the Chinese army decided to play rogue at Ladakh and tensions with India have been simmering since then. This explained why Great Wall could not go ahead with its plans to acquire the GM plant near Pune while Changan and FAW have given their India plans a quiet burial.
Looking back at the three decades of MNCs in the car arena, it is quite apparent that the going has not been as easy as they anticipated. GM and Ford were perhaps guilty of being complacent in the early years when Detroit was on a roll and there was really no need to worry about a minuscule market like India.
However, in the case of Hyundai and Kia, the mantra has been aggression from the world go and this explains why they have been so successful. Competing in a mass market like India where Maruti Suzuki (now with Toyota as partner) rules the roost is not a cakewalk and this is where companies have to do their homework a lot more rigorously.
It will be interesting to see how this decade pans out for the other big brands in this competitive market. Luxury manufacturers such as Mercedes, BMW, Audi, Porsche etc have their niche customers in place and are comfortable with the numbers they are clocking every month.
It is only in the volume game that consolidation becomes imperative and this is where Skoda Auto Volkswagen India, Renault-Nissan and Stellantis will have their work cut out vis-a-vis Toyota-Suzuki and the Hyundai-Kia combine. Honda is the sole Japanese brand and it already has shut down one plant while clocking modest volumes at the other in Rajasthan. It will be doubly cautious about not going down the Ford and GM route.
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